Beyond Meat (BYND) reported third quarter results on Monday evening. To put it as politely as possible, the performance was truly awful. The firm had a lousy quarter. By the numbers, Beyond Meat posted adjusted EPS of $-0.28, badly missing expectations of positive $0.05. Revenue generation did grow 2.7% to $94.44 million, but investors must understand that this is an exceptionally nasty miss versus industry projections up in the low $130 million's. Year over year sales growth has gone over the past four quarters from 213% to 141% to 69% to this 2.7%. The pandemic has ground sales growth to something very close to a halt. Positive news of a potential vaccine should have supported the stock, but there is much more to this story.
Looking past headline performance, we see gross margin that dropped from 34.2% to 27%, we see adjusted EBITDA margin that plummeted from +9.7% to -4.5%, and we see what looks like it could be concerning news (or lack of news) regarding the firm's relationship with McDonald's (MCD) followed by more optimistic news concerning a growing relationship with Yum! Brands (YUM) . Let's talk about this.
On The Quarter
CEO Ethan Brown stated, "We experienced the full, brunt and unpredictability of Covid-19's impact for the first time in Q3, producing net revenues of $94M, a sequential drop from record revenues of $113M in Q2." Brown went on... "While the effect of Covid-19 in our foodservice business is offset by the unprecedented surge and retail grocery demand in the second quarter, our third quarter did not enjoy the same level of benefit and was conversely disadvantaged by consumer stock freezers and subsequent moderation in buying following this run-up in grocery spending in the previous quarter."
I have two questions for Brown that if I were on the call, I would have liked to have asked.
1) The food is not cheap. Do you think perhaps consumers just can not afford these products in this economy without fiscal help?
2) Why did you not warn ahead of the release? I think shareholders (I am not one) probably would have appreciated that.
There was certainly confusion created coming out of the McDonald's investor event as that fast food chain announced it's forthcoming "McPlant'' sandwich. Beyond Meat, as well as many investors, had expected that Beyond Meat would be a supplier to the chain once it moved forward with a plant based sandwich offering. After all, the firm had co-created a plant based patty that McDonald's had tested in the Toronto area market. McDonald's did not mention Beyond Meat, nor any potential supplier, leaving investors with the idea that McDonald's may go this alone, develop their own product or use Beyond Meat products sans Beyond Meat branding. This was taken very badly overnight by traders.
On Yum! Brands
Better news broke later on Monday night. The Pizza Hut division of Yum! Brands announced a partnership with Beyond Meat that would bring plant based faux meat pizzas to consumers both in the U.S. and in the UK. While Brown seems to be waiting to hear from McDonald's, on this he seemed to be on sure footing as he said, "We're thrilled to be on this journey with Pizza Hut that enables us to further increase access to better-for-you plant-based meat as we continue to expand our partnership with Yum! Brands."
The firm did not offer formal guidance though did focus on the unpredictability of the virus and its impact on food services. Here are comments made by investment firm Piper Sandler on the matter. Piper Sandler upgraded BYND to Overweight, while reducing its target from $178 to $144. Piper also reduced sales estimates for 2020 from $535 million all the way to $395 million. Are you following this? That's all at one time. If I am long this name, I find no solace in this upgrade.
What do I think? I have no technical interest in this equity unless it retakes the 50 day SMSA at $125. That said, I may have speculative interest close to $110. A trader could sell (write) the $110 puts expiring this Friday for a rough $2. That pays the trader upfront for taking on potential equity risk at a discount. Said trader could contain that risk by purchasing a like number of similarly dated $100 puts for a cool $0.60 or so. Just an idea.